Angst in America, Part 4: Disappearing Pensions

“Companies are doing everything they can to get rid of pension
plans, and they will succeed.”

– Ben Stein

“Lady Madonna, children at your feet
Wonder how you manage to make ends meet
Who finds the money when you pay the rent?
Did you think that money was heaven sent?”

– “Lady Madonna,” The Beatles

There was once a time when many American workers had a simple
formula for retirement: You stayed with a large business for many years,
possibly your whole career. Then at a predetermined age you gratefully accepted
a gold watch and a monthly check for the rest of your life. Off you went into
the sunset.

That happy outcome was probably never as available as we think.
Maybe it was relatively common for the first few decades after World War II.
Many of my Baby Boomer peers think a secure retirement should be normal because
it’s what we saw in our formative years. In the early 1980s, about 60% of
companies had defined-benefit plans. Today it’s about 4% (source: money.CNN).
But today defined-benefit plans have ceased to be normal in the larger scheme
of things. We witnessed an aberration, a historical anomaly that grew out of particularly
favorable circumstances.

Circumstances change. Such pensions are all but gone from US
private-sector employers. They’re still common in government, particularly
state and local governments; and they are increasingly problematic. They are
another source of angst for retirees, government workers who want to retire
someday, and the taxpayers and bond investors who finance those pensions.
Today, in what will be the first of at least two and possibly more letters
focusing on pensions, we’ll begin to examine that angst in more detail. The
mounting problems of US and European pension systems are massive on a scale
that is nearly incomprehensible.

I came across a chart that clearly points to the growing concern
of those who are either approaching retirement or already retired. This is from
the October 2016 Gloom, Boom
& Doom Report from my friend and 2017 SIC speaker Marc Faber.
The gap in confidence between younger and older Americans is at an all-time
high, after being minimal for many years. A survey by the Insured Retirement
Institute last year noted that only 24% of Baby Boomer respondents were
confident they would have enough money to last through their lifetimes, down
from 37% in 2011. This is the case even after a most remarkable bull market run
in the ensuing years.

Even though the equity market has more than recovered, the
compounding effect that everyone expected for their pension funds and
retirement plans didn’t happen as expected. If the money isn’t there, it can’t
compound. If your plan lost 40% in the Great Recession, getting back to even in
the ensuing years did not make up for the lost money that was theoretically
supposed to come from that 40% compounding at 8% a year. And, as I highlighted
in last week’s letter, the prospects for compounding at 8% or even 5% in the
next 10 years are not very good. Thus the chart above.

And speaking of Marc Faber’s joining us at the conference; let me
again invite you to come to Orlando for my Strategic Investment Conference, May
22–25. I have assembled an all-star lineup of financial and geopolitical
analysts who will help us look at what is likely coming our way in the next few
years. Then we’ll spend the final part of the conference examining various
pathways for the next 10 years and what we have to do to navigate them successfully.
There is truly no other conference like this anywhere. I’m continually told by
people who attend the Strategic Investment Conference that it’s the best
investment conference they’ve ever been to. You can find
out how to register here.

Defined What?

Let’s begin by defining some important terms. US law provides for
various kinds of tax-advantaged retirement plans. They fall into two broad
categories: defined-benefit (DB) and defined-contribution (DC) plans. The
differences involve who puts money into them and who is responsible for the
results.

Defined-benefit plans are generally the old-style pensions that
came with a gold watch and guaranteed you some level of benefit for the rest of
your life. Your employer would invest part of your compensation in the plan,
based on some formula. In some cases, you, the worker, might have added more
money to the pot.

But regardless, at retirement your employer was obligated to
send you a defined benefit
each month or quarter – usually a fixed-dollar amount, sometimes with periodic cost-of-living
adjustments.

(Note: There are defined-benefit plans that small, closely held
employers such as myself or doctors/dentists can create for themselves and
their employees that have significant retirement planning benefits but that
function more like defined-contribution plans. For the purposes of this letter
we’re going to focus on the more or less conventional types of plans rather
than the multitudes of retirement plans that creative accountants and
businesses have developed.)

Once your benefit was defined in this way, your employer was on
the hook to continue paying under the agreed-upon terms. DB beneficiaries had
no control over investment decisions. All they had to do was cash the checks.
Employers took all the risk.

This arrangement works fine as long as you assume a few things.
First, that your employer will invest the DB plan’s assets prudently. Second,
that your employer continues to exist and remains able to make up any
shortfalls in the plan’s liabilities.

DB plans work pretty well if those two things happen. It’s simple
math for actuaries to estimate future liabilities based on life expectancies.
They are uncannily accurate if the group is large enough. So the plan sponsor
knows how much cash it needs to have on hand at certain future dates. It can
then invest the plan assets in securities, usually bonds, calibrated to reach
maturity in the right amounts at the right times.

That all sounds very simple, and it was, but the once-common
scheme ran into trouble for reasons we will discuss below. First, though, let’s
contrast defined-benefit plans with the other category, defined-contribution
(DC).

DC plans are what most workers have now, if they have a retirement
plan at all. The 401(k) is a kind of defined-contribution plan (as are various types
of IRAs/Keogh/SEP plans, etc.). They are called that because regulations govern
who puts money into the plan, and how much. Typically, it’s you and your
employer. Your employer also has to give you some reasonable investment
options, but it’s up to you to use them wisely. Whether there is anything left
to withdraw when you retire is mostly up to you. Good luck.

Which type of plan is better? The more salient question is, which
is better for whom? Both have their advantages. People like feeling they have
some control over their future, but they also like certainty. Companies, on the
other hand, like being able to transfer risk off their balance sheets. DC plans
let employers shuck the risk.

The rub, of course, is that abundant evidence now shows that most
workers are not able to invest their 401(k) assets effectively. That reality
explains some of the retirement
angst we discussed two weeks ago. But DB plans are no bed of roses, either,
particularly when you put elected officials in charge of them and make
unionized government workers their beneficiaries.

Defined-benefit plans have issues going way back. The Studebaker
Motor Company had such a plan when it began shutting down in 1963. The plan
turned out to be deeply underfunded and unable to meet its pension obligations.
Thousands of workers received only a small fraction of what they had been
promised, and thousands more received zero.

That failure kicked off several years of investigations and
controversy that eventually led to the law called ERISA: the Employee
Retirement Income Security Act of 1974. It set standards for private-sector
pension plans and defined their tax benefits under federal law.

Important point: Neither ERISA nor any other law requires employers to offer
any kind of retirement or pension plan; it just sets standards for those who
do. Those standards have turned into something of a mess, frankly. The IRS,
Labor Department, and assorted other agencies all have their own pieces of the
regulatory pie. It is no wonder that many smaller companies don’t have
retirement plans. Simply doing the paperwork is a big job.

That aside, ERISA succeeded in bringing order to previously
inconsistent practices. Workers gained some protections that hadn’t existed
before, and employers had legal certainty about plan administration. ERISA also
created the Pension Benefit Guaranty Corporation (PBGC) to insure pension plans
from default and malfeasance.

Many experts believe the PBGC will run out of money in as little
as 10 years at its current funding levels. The PBGC is not taxpayer-funded
(yet) but exists as a classical insurance fund into which each retirement plan
pays roughly $27 per year per covered employee. That figure would need to
increase to $156 per year per person just to give the PBGC a 90% chance of
staying solvent over the next 20 years.

And if your plan goes bankrupt and you fall into the gentle hands
of the PBGC, your pension funding is likely to be cut by 50% or more. Plans
that were at one point quite generous could see their beneficiaries lose as
much as 75–80% of their previous monthly payouts.

Risk Transfer

ERISA was all to the good, but it couldn’t cure the biggest
headache: the growing amount of money that companies had to to contribute to
their plans to keep them fully funded. Plans that covered retiree health
benefits had an additional headache trying to project future healthcare costs.
Yes, that was a big deal even back in the 1970s.

In 1980, a benefits expert named Ted Benna discovered the 401(k).
Yes, he literally discovered
it in changes to the Internal Revenue Code that had become law two years
earlier. No one set out to create the kind of plans we now recognize as
401(k)s; Benna just looked at the new law and realized it would allow such a
thing. That’s where we got the defined-contribution plan.

The initial idea was that the 401(k) would be a supplement to an
employer’s DB plan, but employers soon realized that it could also be a
replacement. That was an attractive option for many companies, so they began
dropping their DB plans and instead expanded their 401(k) contributions.

Business owners will understand this well. I’ve been there, too. You
have enough headaches as it is. Having the benefits manager come around at the
end of a year when the market had underperformed, telling you to write an
additional giant check to the DB plan, was not fun. With a 401(k), in contrast,
you could add a little match to everyone’s checks on paydays and be done with
it. No one would pop up years later and tell you it wasn’t enough. That some
employees liked the idea of having control over their retirement accounts was
even better.

DB plans got even less compelling when Alan Greenspan began
pushing interest rates down ahead of Y2K. Lower rates meant employers had to
pitch in more cash to keep the plans funded at the necessary level. Or, they
had to take on additional investment risk and be ready to make up any losses
from the company’s resources.

None of that is attractive to most business
owners. Now DB plans are all but unknown in the private sector, the main
exceptions being union-run plans and those run by one-person professional
corporations like physicians and lawyers.

Note carefully: The risks and worries associated with retirement
plan funding have not disappeared. They have simply been dispersed from a small
number of employers to a much larger number of employees. As we discussed
earlier, very few of the latter are in a comfortable position. I don’t mean to
be flippant here, but it’s true: If DC plan owners aren’t worried, they should
be. The days of retiring with a gold watch and a guaranteed monthly check are
gone.

Public Playground

ERISA applies only to private-sector employers. Government
entities need not comply with ERISA’s many requirements, which is good because
many of them don’t.

They do, however, have massive retirement obligations to
their retirees and workers that simple math says will land them in some form of
default. The promises are too generous, and the resources to meet them are too
scarce.

The really frustrating part is that this impending crunch was
completely predictable, given what we know of politics in this country. Elected
officials make extravagant promises to attract votes or contributions. But
everything takes time in government, so politicians just delay making changes
long enough that everyone forgets or finds other things to worry about.

Pension promises aren’t like campaign promises to build new parks
or sewers; Governments can’t forget pension obligations. Pension plans are not
like other, more general public services. They involve specific amounts of cash
owed to specific people on specific dates. Those dates will arrive, and the
cash has to be there. State and local governments can’t run endless deficits
the way the federal government does.

That’s all obvious; yet, for some reason, two things happened in
recent decades:

State and local politicians kept raising pension benefits.

State and local workers believed the promises.

In fairness, we can’t expect city council members and firefighters
to be financial experts. But they have access
to experts. The unions that negotiate most public pension contracts have their
own lawyers, accountants, and actuaries. They should know whether they are
being offered unrealistic projections and promises. And elected officials
likewise have expert counsel, so they should know, too. So I’m not sure who is
more at fault.

By the way, I have a great deal of respect for the people who keep
our cities and states running. Those who protect citizens from harm or
otherwise provide public services deserve fair wages and benefits. Pensions are
part of that. However, we can’t make something from nothing.

One problem is that accounting rules permit governments to do
things private companies can’t. They calculate contributions to their
defined-benefit plans in, shall we say, aggressive ways that do not serve
anyone well. And, they can shop around for consultants who will tell them what
they want to hear. What they want to hear is that they can get away with adding
less to the pension fund so they can spend more on shiny new buildings or just
fix the roads and keep up with normal city services that make them look
productive.

Eventually the math catches up. Here’s a chart my friend Danielle
DiMartino Booth included in a Bloomberg
View article on this topic last month.

Here we see how state and local pension costs have soared in the
last decade. Total unfunded liabilities amounted to only $292 billion in 2007.
They have more than quintupled since then, to $1.9 trillion. That’s due to a
combination of extravagant promises, poor investment results, and failure to
contribute enough cash to the plans. Danielle reels off some startling numbers:

Federal Reserve data show that in 1952, the average public pension
had 96 percent of its portfolio invested in bonds and cash equivalents. Assets
matched future liabilities. But a loosening of state laws in the 1980s opened
the door to riskier investments. In 1992, fixed income and cash had fallen to
an average of 47 percent of holdings. By 2016, these safe investments had
declined to 27 percent.

It’s no coincidence that pensions’ flight from safety has
coincided with the drop in interest rates. That said, unlike their private
peers, public pensions discount their liabilities using the rate of returns
they assume their overall portfolio will generate. In fiscal 2016, which ended
June 30th, the average return for public pensions was somewhere in the
neighborhood of 1.5 percent.

Corporations’ accounting rules dictate the use of more realistic
bond yields to discount their pensions’ future liabilities. Put differently,
companies have been forced to set aside something closer to what it will really
cost to service their obligations as opposed to the fantasy figures allowed
among public pensions.

The situation is actually far worse than the chart shows. The $1.9
trillion in liabilities presumes that the plans will earn far more over time
than the 1.5% return they actually made in 2016. Danielle says unfunded
liabilities are as much as $6 trillion by some estimates.

Anytime we see a liability, the unspoken assumption is that
someone is liable. Who is liable for public pension obligations? Probably you,
depending where you live or own property. State and local governments’ prime
asset is the ability to tax their residents.

We are financially responsible for
the poor and/or self-interested decisions of the politicians we elect. That’s
one reason we ought to pay far more attention to local elections than most of
us do. Congress and the White House matter a great deal – but so do state
legislatures, school boards, and city councils.

When we have a significant bear market during the next recession
(that is not an if
but rather a when),
that $6 trillion figure will balloon to double that amount or more.

And
remember, those are state and local obligations that must be paid from state
and local tax revenues. Paying them would require tax increases for many
municipalities and would more than double current tax rates.

Sound incredible? My own city of Dallas, whose Police and Fire
Pension System was advertised as solvent just a few years ago, is now so deep
in the hole that it would take almost a doubling of city taxes to plug the gap.
Note that I bought my Dallas apartment after that news was announced. I was not
pleased when I read that headline. Such an increase would make my taxes cost
more than my mortgage. Can you say taxpayer revolt? Houston is another city
with such problems.

Nationwide, state and municipal spending has risen from $730
billion in 1990 to $2.4 trillion in 2015. And yet the amount of money used to
fund pensions has risen only a fraction of the amount that other spending has.
The financial problems of Illinois and many California cities are well known.
Let’s turn to a chart listing some of the problem areas in the state of
Massachusetts:

(Note that most Massachusetts government workers are not eligible
for Social Security. This is going to be a serious tragedy when push finally
comes to shove.)

It is almost actuarially impossible for pension funds that are
less than 50% funded to catch up without massive tax hikes that are implemented
solely to allow increases in pension payments but that also result in
reductions in services, not only for retirees but for the general public as
well. Those pension-funding levels are going to be further eroded during the
next recession because more and more cities and states are increasing their
equity exposure, and low interest rates are not helping matters.

We have here the proverbial irresistible force/immoveable object
quandary. Government agencies signed contracts guaranteeing retirement benefits
to their workers. The workers did their jobs, many for decades, trusting that
the promises were solid. Now we see that they often weren’t.

It’s hard to imagine good outcomes here. Retirees want what their
contracts promised, but the money just isn’t there. Governments have little
recourse but to raise taxes, but the taxpayers aren’t captives. Higher property
taxes will make them move elsewhere. Higher sales taxes will make them shop
elsewhere.

Unionized Losses

My good friend Marc Faber generously let me use one of his
newsletters inOutside
the Box last week. In discussing household wealth, he notes
that while the nation’s $22 trillion in pension fund assets is a main component
of household wealth, much of it may be illusory. The illusion is slowly being
exposed, and not just with regard to public-employee pensions. Union plans are
in trouble, too. Marc explains with a February 2017 New York Daily News story.

Narvaez, 77, got a union certificate upon retirement in 2003 that
guaranteed him a lifetime pension of $3,479 a month.

The former short-haul trucker – who carried local freight around
the city – started hearing talk in 2008 of sinking finances in his union’s
pension fund.

But the monthly checks still came – including a bonus “13th check”
mailed from the union without fail every Dec. 15.

Then Narvaez, like 4,000 other retired Teamster truckers, got a
letter from Local 707 in February of last year.

It said monthly pensions had to be slashed by more than a third.
It was an emergency move to try to keep the dying fund solvent. That dropped
Narvaez from nearly $3,500 to about $2,000.

“They said they were running out of money, that there could be no
more in the pension fund, so we had to take the cut,” said Narvaez, whose wife
was recently diagnosed with cancer.

The stopgap measure didn’t work – and after years of dangling over
the precipice, Local 707’s pension fund fell off the financial cliff this
month. With no money left, it turned to Pension Benefit Guaranty Corp., a
government insurance company that covers pensions.

Pension Benefit Guaranty Corp. picked up Local 707’s retiree
payouts – but the maximum benefit it gives a year is roughly $12,000, for
workers who racked up at least 30 years. For those with less time on the job,
the payouts are smaller.

Narvaez now gets $1,170 a month – before taxes.

This is stunning. The union worker they mention went from a $3,479
monthly benefit, supposedly guaranteed for life, to $1,170 a month. That’s a
66% pay cut. Worse, it seems to have happened with almost no warning, to a man
in his late 70s with a cancer-stricken wife. What an awful situation – and it
will be an increasingly common one for anyone depending on a union pension. The
story quotes one union pension lawyer:

“This is a quiet crisis, but it’s very real. There are currently
200 other plans on track for insolvency – that’s going to affect anywhere from
1.5 to 2 million people,” said Nyhan. “The prognosis is bleak minus some new
legislative help.”

I am sorry to disappoint Mr. Nyhan, but “legislative help” is not
on the way. Legislatures have their own pension headaches. So he’s right that
the prognosis is bleak. PBGC doesn’t have infinite resources. The only answer
is some combination of benefit cuts for current retirees and higher
contributions from current workers.

That $156 annual per-worker hike that I mentioned above for the
PBGC? As more and more companies and governments abandon their defined-benefit
plans, there will be fewer and fewer people to make those contributions, which
means that future contributions to the PBGC will potentially need to be much
higher still.

Nowhere to Hide

So we have seen that both public employees and union workers are
right to worry about their pensions. We saw in part 3 of this series that
millions more have no significant retirement savings. What about private-sector
pensions? As noted, defined-benefit plans are disappearing, but many companies
still have legacy plans covering current retirees and those approaching
retirement. Marc Faber is not optimistic for them:

So, whereas prior to the 2008/2009 crisis S&P 1500 companies
were fully funded, today funding
has dropped below 80% (see Figure 7 of the October 2016 GBD
report). I also noted that I found the deteriorating funding levels of pension
funds remarkable because, post-March 2009 (S&P 500 at 666), stocks around
the world rebounded strongly and many markets (including the US stock market)
made new highs. Furthermore, government bonds were rallying strongly after 2006
as interest rates continued to decline. My point was that if, despite truly mouth-watering returns
of financial assets over the last ten years, unfunded liabilities have
increased, what will happen once these returns diminish or disappear
completely? After all, it’s almost certain that the returns of
pension funds (as well as of other financial institutions) will diminish given
the current level of interest rates and the lofty US stock market valuations .

What if returns over the next seven years look like these
projections from Jeremy Grantham of GMO (whose accuracy correlation has been running
well north of 95%):

The deeper you look, the worse this pension situation gets. Angst
is a perfectly reasonable response for anyone who is retired or thinking about
retiring in the next decade. People don’t have sufficient IRA or 401(k)
savings; Social Security will be of limited help; defined-benefit pensions are
unlikely to be as generous as advertised; and healthcare costs keep climbing.
All of the above will keep taxes rising, too, even as the economy remains mired
in slow-growth mode at best or enters a long-overdue recession.

I want to end this letter on a positive note. Can we see any
glimmers of hope? Some, yes. As I noted last week, one answer for older workers
is to work longer and delay retirement. That gives you more years to save and
fewer years to consume your nest egg. It doesn’t have to be drudgery if you
plan ahead and design your encore career strategically.

Helping on that front will be some truly amazing medical
breakthroughs. I see them in the biotechnology research Patrick Cox and I
follow. I spent two days in Florida with Patrick and a few biotech
revolutionaries last week, and it is hard not to be very encouraged. You should
begin to see some of what we learned become publicly available in the next year
or two. These developments will increase both lifespans and health spans,
letting us stay active well into our 80s and beyond.

Finally, someone responded to part 3 of this series by pointing
out that the Baby Boomer generation is still set to receive trillions in assets
held by their still-living parents. That could help. The oldest boomers are now
72, which means their parents are likely in their 90s.

That said, if your retirement plan consists of waiting for your
parents to die and leave you their house, you are still in a very risky
position. For one thing, how much is the house really worth? How much will it
be worth as more people like you try to sell houses like that one? Who will buy
them?

I talked in part 3 about our tendency to deal with immediate needs
first. So many other things seem like higher priorities than retirement
planning and saving. What do you do?

Theodore Roosevelt may have had the best answer: “Do what you can,
with what you have, where you are.” Angst frequently paralyzes us. Don’t let
it. Maybe you can’t do everything it takes, but you can do some of it. Start
there.

Houston and Deadlines

I will have a quick daytrip to Houston next week, but my calendar
looks amazingly clear for almost a month, except for a flurry of conference
calls. The next big event seems to be the Strategic Investment Conference May
22–25! You really should plan on joining me there.

Being at home for a while is good, because I have so many
deadlines and so much research and reading to do that I really need some time
to catch up. I glance at the inbox on my computer, and I find that I have
achieved a personal all-time high number of unanswered messages at 602 – which
is not exactly something I should be proud of. I probably owe a bunch of you
responses. Hopefully I will get to them in the coming weeks. Plus, I have a
number of deadlines, both business and writing, that are looming in the next
month, so not traveling might actually enable me to meet some of them.

In my defense, I did mostly unplug while I was at the Masters
(which, if you are a golfer, is as awesome as you think it would be). And this
year’s final day shoot-out was just the stuff of legends. What a great Masters
to attend! It was really fun to watch Sergio against one of the greatest young
golfers in a head-to-head battle. That, and I had some of the greatest hosts
you could possibly want to have. They asked me not to mention their names, but
they know they are, and Shane and I are thoroughly grateful.

And then I ended up spending an extra day in Florida, delving into
the future of biotechnological research and aging. Things seem to be happening
a lot faster than I expected just a few years ago. Or maybe I’m thinking it was
just a few years ago when I last caught up with this field, and it was actually
more like 10. In any event, I’m convinced that if you are younger than 55, you
really do need to plan to work longer than you expected to. And those of us who
are older need to take better care of ourselves so that we have a chance for
some of these new developments to actually make a difference for us.

When I heard Ray Kurzweil say some 15 years ago that it was his
goal to live long enough to live forever, I sighed. Now, I am no longer
sighing. I am actively planning how to go about doing that very thing. No, I
don’t want to be a 105-year-old shriveled up ghoul, barely able to move about.
The promise that induced
tissue regeneration seemingly holds for reversing the effects of
old age within my lifetime is astonishing, and what was impossible now seems
potentially doable. There still a long way to go, but there are
researchers who believe they can see a path where none existed before.

So for now, let’s hope that some of the true antiaging drugs that
are in the labs actually turn out to be useful. But there are some things we
know now: A healthy diet, working out and getting plenty of aerobic exercise,
taking the medicines that we know are helpful (like blood pressure medicine),
keeping mentally active and involved, and maintaining healthy relationships
will go a long way to increasing our life and health spans.

There’s nothing you can do about accidents, genetic diseases, and
so forth. Yet. But I just hope that I can be writing this letter for a very
long time and that you will be with me as we figure out how to manage an
ever-changing and ever-more-interesting world.

Have a great week and make it your Easter resolution to get into
the gym more.

Fewer, but still with usThe world has made great progress in eradicating extreme poverty

But the going will be much harder from now on

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TO PEOPLE who believe that the world used to be a better place, and especially to those who argue that globalisation has done more economic harm than good, there is a simple, powerful riposte: chart 1, below. In 1981 some 42% of the world’s population were extremely poor, according to the World Bank. They were not just poorer than a large majority of their compatriots, as many rich countries define poverty among their own citizens today, but absolutely destitute. At best, they had barely enough money to eat and pay for necessities like clothes. At worst, they starved.Since then the number of people in absolute poverty has fallen by about 1bn and the number of non-poor people has gone up by roughly 4bn. By 2013, the most recent year for which reliable data exist, just 10.7% of the world’s population was poor (the modern yardstick for destitution is that a person consumes less than $1.90 a day at 2011 purchasing-power parity). Poverty has almost certainly retreated further since 2013: the World Bank’s finger-in-the-wind estimate for 2016 is 9.1%. Homi Kharas of the Brookings Institution, a think-tank, calculates that someone escapes extreme poverty every 1.2 seconds.

This is impressive and unprecedented. Economic historians reckon that it took Britain about a century, from the 1820s to the 1920s, to cut extreme poverty from more than 40% of its population to below 10%. Japan started later, but moved faster. Beginning in the 1870s, the share of its population who were absolutely poor fell from 80% to almost nothing in a century. Today two large countries, China and Indonesia, are on course to achieve Japanese levels of poverty reduction more than twice as fast as Japan did.Unfortunately, this happy chapter in world history is drawing to a close. The share of people living in absolute poverty will almost certainly not decline as quickly in the future—and not because it will hit zero and therefore have nowhere to fall. Even as the global proportion of poor people continues to drift slowly downwards, large pockets of poverty will persist, and some of them are likely to swell. The war on want is about to settle into a period of grinding battles in the trenches..Until recently the world’s poorest people could be divided into three big groups: Chinese, Indian and everybody else. In 1987 China is thought to have had 660m poor people, and India 374m. The concentration of destitution in those two countries was in one sense a boon, because in both places better economic policies allowed legions to scramble out of poverty. At the last count (2011 in India; 2013 in China) India had 268m paupers and China just 25m. Both countries are much more populous than they were 30 years ago.Some of the decline in poverty in China and India is artificial, caused by more accurate household surveys and new estimates of purchasing power. But most of it is real. In both countries, economic growth has benefited the poor as well as the rich, peasants as well as city-dwellers: the magic ingredient in China’s poverty-reduction formula since the 1980s has been not its factories but its highly productive small farms. Much the same is true of other Asian countries. Carolina Sanchez, a manager at the World Bank, is particularly impressed by Bangladesh, where many sparsely educated women have been able to find good jobs in textile factories.These days about four-fifths of all extremely poor people live in the countryside, and just over half of them live in sub-Saharan Africa (see chart 2). Africa is as studded with examples of failure as Asia is filled with success stories. Look at Nigeria, says Kaushik Basu, an economist at Cornell University. In 1985 the share of Nigerians below the international poverty line was estimated to be 45%—a lower proportion than in China or Indonesia. Now Nigeria has a much higher share of poor people than either country. The World Food Programme, an arm of the UN, is sending bags of grain to the lawless, hungry north-east..Sub-Saharan Africa is not actually going backwards. Its absolute poverty rate has fallen from 54% in 1990 to 41% in 2013. But because Africa’s population is growing so quickly—by about 2.5% a year, compared with 1% for Asia—and because the poverty rate is declining only slowly, the number of poor Africans is higher than it was in the 1990s. With more destitute inhabitants than any other region, sub-Saharan Africa now drives the global poverty rate.

Working towards welfare

That is bad news, because African poverty is particularly intractable. The first problem is that economic growth has been weak, considering the continent’s swelling population. According to the IMF, since 2000 GDP per head at purchasing-power parity has doubled in sub-Saharan Africa; in emerging Asia it almost quadrupled. Oil-producing states such as Angola and Nigeria have gone through booms that have done little to cut deep poverty—and, anyway, have been followed by busts.

A second problem is that many African governments are flimsy, incompetent, authoritarian or rapacious. The OECD, a club of mostly rich countries, counts 56 places in the world as “fragile”—mostly countries, but including the West Bank and Gaza Strip. Fully 36 are in Africa. The continent is not as ravaged by war as it was in the 1980s and 1990s, but it still has some disastrous countries, such as the Democratic Republic of Congo and South Sudan, and a larger number that occasionally lapse into political violence, such as Ivory Coast and Kenya. Violence both creates poverty and distracts governments from the work of dealing with it.The third problem is that poor people in Africa are commonly very poor indeed. Compare Rwanda with Bangladesh. Both are low-income countries; both are reasonably competently governed; both have grown well in the past few years. But Rwanda’s poor are much poorer than Bangladesh’s. Many get by on around $1 a day (see chart 3). Suppose, says Laurence Chandy of UNICEF, that Rwanda experiences 5% growth per head every year for ten years and this growth is spread evenly. At the end of that impressive run, a quarter of Rwandans would still be below the absolute poverty line.
.Rwanda is in a worse position than Bangladesh—except in one sense. Because it has a large lump of people below the $1.90 poverty line, Rwanda ought to be able to pull ever more people over the line for every point of growth (assuming the growth is evenly spread). In Bangladesh the opposite is true. It has a lump of people who are just clear of poverty and a diminishing proportion just below the line who can easily be pulled over. Bangladesh has made excellent progress against poverty so far. It will probably make slower progress from now on.India is in a similar position to Bangladesh, points out Mr Basu, who used to be the chief economic adviser to India’s government. With huge numbers of people who are barely out of poverty, it now needs to prevent near-paupers from falling back, while also dragging the poorest out of destitution faster than economic growth alone could do the job.In short, India and countries like it need proper welfare systems. They are still some way from getting them. In general, government spending is a smaller share of GDP in lower-middle-income countries than in poorer or richer ones. South Asia is especially mean compared with Latin America. In 2014 India spent just 0.7% of its GDP on social safety-net programmes. Three years earlier Brazil had spent 2.4% of its GDP on such programmes. And half of India’s spending went on rural public-works projects and feeding children in schools. Brazil’s payments were nearly all cash transfers, which are more efficient. India has trimmed some spectacularly ill-targeted handouts, such as fuel subsidies, and is musing about a universal basic income, made possible by its biometric identity system, which now covers an astounding 1.1bn people. But that is still talk.As extreme poverty disappears everywhere except in Africa and in Asian countries with weak welfare systems, the campaign to eradicate it is likely to slow down. The World Bank reckons that about 4% of the world’s population will still be poor in 2030 if economies continue to grow as quickly as they have in the past ten years and poor people’s incomes grow at the same rate as everyone else’s. The number of poor people might even rise a Little.

The last-mile problem

After decades of astonishing progress, a spell of sluggish poverty-reduction would be a great disappointment. Among other things, it would probably mean a prominent target being missed. In 2000 the members of the UN agreed to try to cut poverty to half of the 1990 level by 2015.Progress was so quick that the world got there at least five years early. So two new targets have been set—the first of a long list of “sustainable development goals”. The world is now supposed to cut the absolute poverty rate to 9% by 2020 and 3% by 2030. The first of these targets can and probably will be hit. The second looks out of reach.Still, a global target for reducing absolute poverty seems increasingly beside the point, because poverty is less and less global. In the mid-19th century every continent had a large population of poor people. Now, after absolute poverty has been virtually eradicated in one region after another—Europe, North America, Latin America and now East Asia—it has become a plague specific to South Asia and sub-Saharan Africa. It seems likely that poverty will become ever more African.It is possible to imagine a future in which the global poverty rate continues to drop even as poverty becomes more entrenched in a few unlucky countries, scarred by war and bad government. That would be a huge improvement on the past, but hard to cheer. A broadly poverty-free world, but with sad, durable exceptions, is not good enough.

Turkey's economy is suffering badly amid the country's political uncertainty. Investors have lost confidence, tourists are staying away and the lira is rapidly losing value. President Erdogan hasn't grasped the severity of the situation.

Until recently, Haci Boydak was a popular man. The 56-year-old operated several dozen companies, including Istikbal and Boytas, two Turkish competitors to IKEA. Politicians used to ask him for advice and his hometown of Kayseri in central Anatolia even named a football stadium after him.But that chapter has now come to a close. If Turkish President Recep Tayyip Erdogan gets his way, all references to Boydak in the country are to vanish. Last spring, police arrested the businessman along with two other senior executives from the family's holding company and locked them up in a prison near Ankara. Boydak's assets were confiscated and his companies were placed in receivership. Even Boydak Arena in Kayseri got a new name.Erdogan suspects Boydak of having supported the Muslim cleric Fethullah Gülen, who the Turkish president blames for the failed military coup in the country on July 15, 2016. The businessman's case clearly shows the direction Turkey has taken since the events of last summer and how Erdogan has set about transforming his country into a dictatorship. Around 130,000 civil servants have either lost their jobs or been suspended while 45,000 people have been arrested.Now, the purge has increasingly turned to the country's economic elite. Scores of business leaders have been put behind bars as suspected conspirators behind the putsch.The trend has not been without consequences. The Turkish economic miracle is currently in the process of transforming into the opposite: The country's gross domestic product, which grew by 9 percent at one point under Erdogan's leadership, saw a drop of 1.8 percent in the third quarter of 2016 relative to the same period in 2015. In December, unemployment climbed to 13 percent, which is the highest level in seven years. And the Turkish lira is at an historic low against the dollar, which has put companies that hold debt in US dollars in a tight spot.Taken together, the situation could put Erdogan on the defensive more quickly than expected. On April 16, Turkish voters will be voting on constitutional changes that would hand the president significantly greater powers than he currently enjoys. At the end of last year, surveys indicated that Erdogan was going to get his wish, but now, with the economy in the doldrums, victory is looking less certain. Millions of Turks, after all, didn't elect Erdogan because of his nationalist agenda and Islamist leanings. They did so because of his promise of prosperity. Under his leadership, an Anatolian middle class has developed -- one which is now concerned that its standard of living may plunge once again. According to one recent survey, two-thirds of Turks are unhappy with economic developments in their country. Even in places like Kayseri, long considered a stronghold of Erdogan's Justice and Development Party (AKP), the president is facing criticism.

A 'Ghost Town'

On a recent chilly day in March, the 54-year-old businessman Kenan Marasli was strolling across the market square. Many of the shops were shuttered and had "for sale" signs in their show windows. "Kayseri has become a ghost town," Marasli says. "Even under the Junta in the 1980s, the situation wasn't as hopeless as it is today."Marasli, a sturdily built man with a moustache and thinning gray hair, used to run a grocery wholesaler in Kayseri, but business plunged following the coup attempt, he says. In December, Kurdish extremists carried out an attack on a military bus. In response, a nationalist mob attacked the offices of the pro-Kurdish party HDP. Marasli, who was active on behalf of the HDP, also received threats. He was forced to close up shop, as were many others.Kayseri is considered to be the birthplace of the "Anatolian Tigers," the Muslim-conservative business leaders who achieved significant wealth under Erdogan. The city is located in the heart of Anatolia, roughly equidistant from the Mediterranean coast in the west and the Iranian border in the east, and in the last three decades, its population has exploded from 500,000 to 1.4 million. In 2004, the city applied for a mention in the Guinness Book of World Records, with 139 companies founded in a single day.Haci Boydak, the business leader who is now in prison, was one of those company founders. His holding company employs more than 12,000 people and exports goods to more than 140 countries and he was also an important AKP donor. The think tank European Stability Initiative described Boydak in one study as an "Islamic Calvinist," a man who combined Islam and modernity, capitalism and piety.Like many in Kayseri, Boydak was sympathetic to Fethullah Gülen and is thought to have donated significant sums to the Gülen movement, which operates schools, media outlets and insurance companies around the world. Gülen's followers venerate the cleric, who has lived in exile in the United States since 1999, as a Muslim reformer while his opponents accuse him of being the leader of an Islamist sect.

Indifference at the Top

Gülen and President Erdogan were allies for quite some time, but had a falling out in 2013. The government now believes the cleric was behind the 2016 military coup attempt and has been going after his followers ever since -- including those who helped make the country an economic powerhouse.In recent months, Erdogan has had around 800 companies confiscated, worth a total of 10 billion dollars. In Kayseri alone, some 60 business leaders in addition to Boydak have been arrested as alleged coup participants or terrorists, including the head of the local chamber of commerce and industry. Exports from the region surrounding Kayseri plunged by at least 4 percent last year while two of every five shops in the city center have closed since the coup attempt, says Marasli.Erdogan doesn't seem to care, and he has shown an indifference to the statistics as well. On the contrary, in his speeches, he conjures up images of a strong Turkey that has emancipated itself from Europe and will soon become one of the largest economies in the world.The truth, however, is that the country is in the process of economic collapse. State repression has created an atmosphere of fear and distrust -- and that has taken a heavy toll on business.In Levent, the Istanbul banking quarter, anti-terror police patrol the streets and pro-referendum posters featuring Erdogan's portrait are plastered on buildings. Tolga Yigit, the Turkish manager of an American investment bank, pushes his way past the security gate into a Starbucks café in the shadow of the adjacent office towers. He imposed two conditions on our interview: that his real name not be used and that his employer likewise not be revealed. Otherwise, the investment banker fears that he could become a target of the government. "Nobody who criticizes Erdogan is safe in Turkey," he says.Yigit was once a supporter of the president's AKP party and says that when Erdogan became prime minister in 2003, he modernized the Turkish economy, including reducing bureaucracy and opening the market to private investors. Foreign financiers were eager to invest in companies in the country, pouring around $400 billion into Turkey between 2003 and 2012. The sum was more than 10 times higher than in the 20 previous years.

'The Risk Is Simply Too High'

But the aftermath of the coup attempt -- the mass arrests of opposition activists and the confiscation of companies -- has scared investors off. The rating agencies Moody's and Standard & Poor's have slashed Turkey's credit rating to junk status and foreign investment plunged by over 40 percent last year.Yigit says that he can hardly find anyone anymore who is interested in doing business in Turkey. "The risk is simply too high for investors," he says. Meanwhile, clients who have been economically involved in the country for years are now pulling their money out.The capital flight has triggered a downward spiral that has been particularly noticeable in the construction industry. Turkey's high growth rates in recent years were fueled primarily by infrastructure projects, with Erdogan pouring money into the construction of highways, hospitals and airports. Now, though, there is insufficient foreign capital available and growth is stagnating.Furthermore, political instability has led to a steep drop in tourism revenues, with a plunge of roughly one-third last year. There are hundreds of hotels up for sale on the Turkish Riviera, on the country's southwest coast, and some 600 of 2,000 shops in Istanbul's Grand Bazaar have been forced to close since last summer, according to the bazaar's merchant association. Turkish Airlines has taken 30 planes out of service.The consequences of the struggling economy can be seen in day-to-day life: Companies have been forced to lay off workers and cut salaries; people have less money. Domestic consumption, which made up 60 percent of the country's GDP last year, has shrunk.At the same time, the Turkish currency, the lira, has rapidly lost value and inflation stands at 10 percent. "We are heading toward the worst-case scenario: economic stagnation combined with persistent inflation," says Istanbul-based economic writer Mustafa Sönmez. "Turkey is on the verge of bankruptcy."

Great Potential

Observers fear that Turkey could take other countries along with it. The country holds $270 billion of debt with international banks, with $87 billion of that total in Spain, $42 billion in France and $15 billion in Germany. Should the country default or partially default, Sönmez believes, it could trigger another financial crisis in Europe.Germany, too, is affected by Turkey's economic struggles. Almost 7,000 German companies are active in Turkey, with 2016 trade volume at 37 billion euros. Many of these companies are increasingly worried about business. Volkswagen, for example, sold one-third fewer trucks in Turkey in 2016 than it did the previous year. "The market in Turkey has come to a standstill because of the political developments," says Andreas Renschler, head of the VW subsidiary Volkswagen Truck and Bus. In another example, Hamburg-based shopping-center operator ECE was forced to back out of management of a shopping mall in Istanbul after its Turkish partner firm, which owned the center, was confiscated by the state.German-Turkish Chamber of Commerce head Jan Nöther, whose Istanbul office looks out over the Bosporus Strait, finds the situation challenging. Turkey, he says, has the potential to become a successful economic power: a young population combined with modern infrastructure. "Everything is there."But the country's current direction, he says, is difficult to understand for international industry. German-Turkish trade relations, he says, are immune to crisis, but sooner or later companies will begin looking around for other locales if stability in Turkey becomes unreliable.Erdogan, by contrast, depicts the crisis as a conspiracy of international powers against his country. "There is no difference between a terrorist who has a weapon or bomb in his hands and a terrorist who has dollars, euros and interest rates, in terms of aim," he said in January. "The aim is to bring Turkey to its knees."For weeks, Ankara has been waging verbal warfare against European countries that have banned referendum campaign appearances by Turkish ministers. Erdogan himself has accused the German government of "Nazi practices," "racism" and "Islamophobia." Last Sunday, he announced that following the upcoming constitutional referendum, he would call a second vote to ask the Turkish people how they feel about European Union accession.

Living in His Own World

It is becoming increasingly apparent that Erdogan is seeking to divert his people's attention from the fact that he doesn't have a plan for confronting the economic headwinds his country is currently experiencing. Meanwhile, he is almost desperately seeking to procure capital. Ankara has introduced a special gasoline tax and resolved to increase value added tax (VAT). Likewise, Finance Minister Mehmet Simsek met with his German counterpart Wolfgang Schäuble in February in the search for support for his country's shaky economy.Furthermore, experts have been warning for months that the Turkish Central Bank needs to raise interest rates more rapidly to prop up the lira. But Erdogan is afraid that growth would drop even further as a result. Instead, he has blamed an "interest-rate lobby" for the lira's plunge and for inflation and has summoned his compatriots to exchange their dollar and euro savings for liras. "Let's not contribute to making foreign currencies even stronger," is his doctrine.Yigit can only shake his head. The investment banker has participated in several conference calls with AKP politicians in recent months and he believes that the government doesn't fully appreciate the gravity of the situation. Erdogan, he notes, continues to claim that Turkey is a global power and that all other countries are just jealous of its success. "Our president," says Yigit, "is now living in his own world."

Just as elsewhere, the ECB’s exit from loose monetary policy is more complex than its introduction

By Richard Barley

If the eurozone economy continues to improve and political fears subside further, then more pressure will build on the ECB. Photo: daniel Roland/Agence France-Presse/Getty Images

The European Central Bank is taking its foot off the quantitative-easing gas, with bond purchases slowing to €60 billion a month in April from €80 billion. But it is keeping the negative-interest-rate pedal floored. That looks increasingly odd.Sure, the ECB isn’t rushing for the exit from loose monetary policy. Friday’s flash eurozone inflation reading of 1.5% for March, down from 2% in February, gives policy makers room to take a cautious stance. But the sequencing of the ECB’s moves is still open to question.The ECB has said it would hold interest rates at current or lower levels until well after its bond-purchase program comes to an end. That would match the path taken by the Federal Reserve, which didn’t raise rates for more than a year after it wound down quantitative easing.But it isn’t clear the ECB should simply follow the Fed. For a start, the Fed’s interest rate never broke below zero, while the ECB deposit rate is at minus 0.4%. A negative nominal interest rate is arguably a more unconventional tool than bond purchases. And the ECB carried on reducing rates alongside its bond-buying program.When they were initially introduced, negative rates appeared to be an alternative to bond purchases for the ECB. Quantitative easing was difficult in the eurozone because of the fragmented nature of bond markets and political sensitivities. But the ECB ended up buying bonds, and it is QE that has the bigger influence on markets—in particular in helping to reduce long-term interest rates for southern European countries. Negative interest rates have fallen from favor due to their potential side effects on the financial system, and the way they may encourage excess saving.For a while the two policies were linked: the ECB wouldn’t buy bonds yielding less than the deposit rate. That became a constraint on purchases, particularly in Germany, raising doubts about the ECB’s ability to carry out its monetary policy.But the link has been broken, and the ECB is now buying bonds even at yields below the deposit rate. The last cut in the deposit rate came alongside an increase in bond purchases to €80 billion a month from €60 billion in March 2016 as deflation fears bit. The two steps were in unison, but only one is being reversed. The asymmetry born of the ECB’s guidance—which made sense in the depths of a deflationary panic—is clear. But taken at face value, it means negative rates could persist well into 2018.If the eurozone economy continues to improve and political fears subside further, then more pressure will build on the ECB. Negative interest rates always looked like an anomaly. They look like even more of one today.

Stronger manufacturing activity bodes well for economic growth but isn’t necessarily great for stock investors

By Steven Russolillo

President Donald Trump’s pledge to revitalize American manufacturing is already bearing fruit in recent factory data. Stock-market investors like that. They may be less pleased if it emboldens a faster rate-tightening cycle.More evidence of manufacturing’s latest rebound is expected Monday when the Institute for Supply Management releases its monthly report. Factory activity has expanded significantly in recent months, giving hope that the U.S. economy could also be poised for faster growth as well.Economists polled by The Wall Street Journal estimate that the ISM’s manufacturing index hit 57.5 in March, comparable to the 57.7 reading in the prior month. That would mark the seventh straight month the index has been above 50, matching the longest streak in six years. Readings above 50 imply customers’ orders and factory production are expanding..

An employee checks the tolerance of a chain during production at the Pewag manufacturing facility in Pueblo, Colo., on March 22. The Institute for Supply Management is scheduled to release manufacturing figures on Monday. Photo: Bloomberg News

ISM said last month that its index at current levels tends to correspond with an economy growing at 4.5% annually. That would be more than twice the economy’s average annual growth in the current expansion.

Diffusion surveys such as ISM’s garner attention because they usually come before government data and ask respondents about whether conditions are improving, not their absolute level. It is no coincidence then that they have surged under Mr. Trump, who has focused on reviving manufacturing employment.

But evidence of a rebound in activity was mounting before the election. Rising oil prices and stabilizing growth around the world also have contributed to the improved manufacturing conditions. And now, after waffling above and below 50 in late 2015 and early 2016, the index finds itself in rarefied territory. Over the past 30 years, the ISM indicator has been at or above 57 only 15% of the time. Just like now, almost all of those instances occurred as the Federal Reserve was raising interest rates.

Before the financial crisis, the ISM index jumped above 57 in late 2003 and stayed above it for about a year. That coincided with the start of the Fed’s tightening cycle which spanned from 2004 through 2006. The ISM index was also above 57 in late 1999, most of 1994, and a majority of 1987. Not coincidentally, all three time frames came during Fed tightening cycles.

The Fed only has raised interest rates three times since the financial crisis, including once last month. Now the debate centers on whether the central bank will hike rates either two or three more times over the course of the year.

Stock investors cheering the bounce in manufacturing sentiment need to recognize that every action has a reaction. Higher rates usually aren’t a reason to celebrate.

ATHENS – On March 25, Europe’s leaders convened in the birthplace of the “European project” to celebrate the 60th anniversary of the Treaty of Rome. But what exactly was there to celebrate?

Were they reveling in Europe’s disintegration, which they now call “multi-speed” or “variable geometry” Europe? Or were they there to applaud their business-as-usual approach to every crisis – an approach that has fanned the flames of xenophobic nationalism throughout the European Union?

Even dyed-in-the-wool Europhiles admitted that the Rome gathering felt more like a wake than a party. A few days later, British Prime Minister Theresa May sent her letter to the EU formally triggering the United Kingdom’s slow but irreversible exit.

The liberal establishment in London and around the continent is aghast at how populism is tearing Europe apart. Like the Bourbons, they have learned nothing and forgotten nothing. Not once did they pause for critical self-reflection, and now they feign shock at the legitimacy gap and the anti-establishment passion that threatens the status quo and, consequently, their authority.

Back in 2015, I often warned Greece’s creditors – the crème de la crème of the international liberal establishment (the International Monetary Fund, the European Commission, the European Central Bank, German and French officials, and so on) – that strangling our new government in its cradle was not in their interest. If our democratic, Europeanist, progressive challenge to permanent debt bondage were snuffed out, I told them, the deepening crisis would produce a xenophobic, illiberal, anti-European wave not only in Greece but across the continent.

Like reckless giants, they did not heed the omens. Greece’s brief rebellion against permanent depression was ruthlessly suppressed in the summer of 2015. It was a very modern coup: EU institutions used banks, not tanks. Unlike the coups that overthrew Greece’s democracy in 1967 or Czechoslovakia’s Prague Spring a year later, the usurpers wore suits and sipped mineral water.

The official version of these events was that the EU was obliged to intervene to force a wayward population back to the path of fiscal rectitude and structural reform. In reality, the coup leaders’ main concern was to avoid admitting what they had been doing since 2010: extending a generalized bankruptcy into the future by forcing Greece to accept new, European taxpayer-funded loans, conditional on ever-greater austerity that could only shrink Greek national income further.

The only way to continue doing this in 2015 and beyond, however, was to push Greece deeper into insolvency. And that required crushing our Greek Spring.

Interestingly, the surrender document forced upon Greece’s prime minister, and approved by Parliament, was phrased as if it had been written at the request of the Greek authorities. Like Czechoslovakia’s leaders in 1968, forced by the Kremlin to sign a letter inviting the Warsaw Pact to invade their country, the victim was required to pretend that it had requested its punishment. The EU was only responding kindly to that request. Greece experienced collectively the treatment Britain’s poor receive when they claim benefits at Job Centers, where they must accept responsibility for their humiliation by affirming condescending platitudes such as: “My only limitations are the ones I set for myself.”

This punitive turn on the part of the European establishment was accompanied by the loss of all self-restraint. As Greece’s finance minister, in early 2015, I learned that the salaries of the Chair, CEO, and members of the board of a public institution (the Hellenic Financial Stability Facility [HFSF]) were stratospheric. To economize, but also to restore fairness, I announced a salary cut of around 40%, reflecting the average reduction in wages throughout Greece since the start of the crisis in 2010.

The EU, usually so keen to shrink my ministry’s outlays on wages and pensions, did not exactly embrace my decision. The European Commission demanded that I reverse it: after all, these salaries went to functionaries selected by EU bureaucrats – people they considered their own. After the EU forced our government into submission, and following my resignation, those salaries were raised by up to 71% – the CEO’s annual pay was bumped to €220,000 ($235,000). In the same month, pensioners receiving €300 per month would have their monthly benefits cut by up to €100.

Once upon a time, the liberal project’s defining feature was, in John F. Kennedy’s stirring words, the readiness to “pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the survival and the success of liberty.” Even neoliberals, like Ronald Reagan and Margaret Thatcher, strove to win hearts and minds, to convince the working class that tax cuts and deregulation were in its interest.

Alas, following Europe’s economic crisis, something other than liberalism, or even neoliberalism, has taken over our establishment, seemingly without anyone noticing. Europe now has a highly illiberal establishment that does not even try to win over the population.

Greece was just the start. The repression of the Greek Spring in 2015 led the left-wing Podemos party to lose its momentum in Spain; no doubt many of its potential voters feared a fate similar to ours.

And, having observed the EU’s callous disregard for democracy in Greece, Spain, and elsewhere, many supporters of Britain’s Labour Party went on to vote for Brexit, which in turn boosted Donald Trump, whose triumph in the United States filled the sails of xenophobic nationalists throughout Europe and the world.

Now that the so-called liberal establishment is feeling the nationalist, bigoted backlash that its own illiberalism brought about, it is responding a little like the proverbial parricide who appeals to the court for leniency on the grounds that he is now an orphan. It is time to tell Europe’s elites that they have only themselves to blame. And it is time for progressives to join forces and reclaim European democracy from an establishment that has lost its way and endangered European unity.

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.